UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2010





o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO




Commission File Number: 000-53797





GREEN EARTH TECHNOLOGIES, INC.


(Exact name of registrant as specified in its charter)





Delaware

26-0755102(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)




10 Bank Street, Suite 680, White Plains, New York


(Address of principal executive offices)





(877) 438-4761


(Registrant’s telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes þ No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
o
Accelerated filer
oNon-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
þ





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ





As of November 15, 2010, the issuer had a total of 134,918,143 shares of common stock, $0.001 par value, outstanding.










TABLE OF CONTENTS




PAGEPART I.     FINANCIAL INFORMATIONItem 1.
Unaudited Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2010 and September 30, 2010
3Condensed Consolidated Statements of Operations for the Three Months EndedSeptember 30, 2009 and 2010
4Condensed Consolidated Statement of Stockholders’ Equity for the Three MonthsEnded September 30, 2010
5Condensed Consolidated Statements of Cash Flows for the Three Months EndedSeptember 30, 2009 and 2010
6Notes to Condensed Consolidated Financial Staements
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15Item 3.
Quantitative and Qualitative Disclosures About Market Risk
19Item 4.
Controls and Procedures
19PART II.       OTHER INFORMATIONItem 1.
Legal Proceedings
21Item 1A.
Risk Factors
21Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22Item 6.
Exhibits
23SIGNATURES
24




i





GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)


(in thousands, except share data)


June 30,

2010


September 30,

2010Current assets:Cash

$
1,360


$
405Trade receivables, less allowance of $45 and $23


419



319Inventories, net


1,788



1,521Prepaid expenses and current assets


183



272Total current assets


3,750



2,517Property and equipment, net


82



75Intangibles, net


1,670



1,579$
5,502


$
4,171LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
1,679


$
1,554Accrued expenses


1,093



1,142Deferred revenue, related party


407



407Notes payable, related party


200



160Total current liabilities


3,379



3,263Commitments and contingenciesStockholders’ equityCommon stock, $0.001 par value, 200,000,000 shares authorized, 140,018,153 and 134,918,153 shares issued and outstanding, as of June 30, 2010 and September 30, 2010


140



135Additional paid-in capital


47,221



48,618Accumulated deficit


(45,238
)


(47,845
)Total stockholders' equity


2,123



908$
5,502


$
4,171
 See notes to condensed consolidated financial statements.
 3
  GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share data)




Three Months Ended September 30,2009


2010Net sales


425


$
460Operating expense:Cost of sales (exclusive of depreciation and amortization which is shown below)


366



371Selling, general and administrative expenses, including stock-based compensation of $911 and $1,042


2,626



2,596Depreciation and amortization


136



983,128



3,065Loss from operations


(2,703
)


(2,605
)Interest expense, net


(7
)


(2
)Loss from operations before income taxes


(2,710
)


(2,607
)Income tax


-



-Net loss


(2,710
)

$
(2,607
)Basic and diluted loss per common share


(0.03
)

$
(0.02
)Basic and diluted weighted average common sharesoutstanding


85,779,725



139,798,588
  See notes to condensed consolidated financial statements.
  4
  GREEN EARTH TECHNOLOGIES, INC
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
 (in thousands)
  Additional


CommonCommon Stock


Paid


Stock


AccumulatedShares


mount


In Capital


Subscription


Deficit


TotalBalance at June 30, 2010


140,018


$
140


$
47,221


$
-


$
(45,238
)

$
2,123Private placement of common stock


700



1



349



-



-



350Share Exchange


(6,000
)


(6
)


6



-



-



-Stock-based compensation expense


200



-



1,042



-



-



1,042Net loss


-



-



-



-



(2,607
)


(2,607
)Balance at September 30, 2010


134,918


$
135


$
48,618


$
-


$
(47,845
)

$
908
  See notes to condensed consolidated financial statements
  5


GREEN EARTH TECHNOLOGIES, INC CONDENSED CONSOILIDATED STATEMENT OF CASH FLOWS (Unaudited) (in thousands)


Three Months Ended September 30,2009


2010Cash flows from operating activitiesNet loss

$
(2,710
)

$
(2,607
)Adjustments to reconcile net loss to net cash used inoperating activitiesDepreciation and amortization


136



98Stock-based compensation expense


911



1,042Allowance for accounts receivable


(3
)


-Increase in allowance for inventory


64



-Changes in assets and liabilities:Accounts receivable


117



100Inventories


39



267Prepaid expenses and other current assets


(11
)


(89
)Accounts payable


(562
)


(125
)Accrued expenses


238



49Deferred revenue


321



-Net Cash Used in Operating Activities


(1,460
)


(1,265
)Cash flows from investing activitiesAcquisition of equipment


(4
)


-Cash flows from financing activitiesProceeds from issuance of common stock, net ofissuance costs


232



350Deposit from common stock subscription


1,200



-Proceeds from notes payable, related party


10



-Repayment of notes payable


(124
)


(40
)Net Cash Provided by Financing Activities


1,318



310Net decrease in cash


(146
)


(955
)CashBeginning of period


697



1,360End of period

$
551


$
405Interest payments

$
-


$
-Income taxes paid

$
-


$
4
  See notes to condensed consolidated financial statements.
  6


GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)




1.
SUMMARY OF BUSINESS AND BASIS FOR PRESENTATION





Organization and Business





Green Earth Technologies, Inc. and its wholly-owned subsidiary, GET Manufacturing, Inc., were each formed on August 7, 2007 under the laws of the state of Delaware (collectively, the “Company”).  The Company, markets, sells and distributes bio-degradable performance and cleaning products.  The Company’s product line crosses multiple industries including the automotive aftermarket, marine and outdoor power equipment markets. The Company sells to home centers, mass retail outlets, automotive stores, equipment manufacturers and over the Internet.





Basis of Presentation





The accompanying unaudited condensed consolidated financial statements include the accounts of the Company.  All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by the Company, without audit (except where noted), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented.





Certain information in footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America has been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results, although the Company believes the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended June 30, 2010 included in the Company’s


Annual Report on the Form 10K filed in September 2010.





Liquidity and Going Concern





Due to the Company’s limited capital, recurring losses and negative cash flows from operations, and the Company’s limited ability to pay outstanding liabilities, there is substantial doubt about its ability to continue as a going concern. These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, assuming that the Company will continue as a going concern.





As reflected in the accompanying consolidated financial statements, the Company had a net loss of $2,607 and net cash used in operations of $1,265 for the three months ended September 30, 2010 and has a working capital deficit of $746 and stockholders’ equity of $908. The Company has relied upon cash from financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from operating activities in the past and there is no assurance that it will be able to do so in the future.





The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable, or if its business will improve.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.




7




GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)




The Company must increase revenues in order to reduce, or eliminate, its operating losses.  Additionally, the Company needs additional capital in order to enable it to continue to meet its financial obligations until it achieves profitability.  There can be no assurance that the Company will be able to raise additional capital, whether from the sale of equity, debt or convertible securities or otherwise, on favorable terms, or at all. Failure to obtain sufficient financing would have a substantial adverse effect on the Company’s business, operations and financial condition.





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue Recognition – Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured.  The risk of loss transfers to the customer on the date the product is shipped.  The Company’s revenue is comprised of the sale of its products to retailers and distributors.





Impairment of Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  When it becomes apparent that indicators such as a significant decrease in the market value of the long-lived asset group or if material differences between operating results and the Company’s forecasted expectations occur, then an impairment analysis is performed.





Shipping Costs – Shipping costs are included in selling, general and administrative expenses.  During the three months ended September 30, 2009 and 2010, shipping cost totaled $142 and $96, respectively.





Advertising and Promotional Costs – Advertising and promotion costs, which are included in selling, general and administrative expense, are expensed as incurred.  During the three months ended September 30, 2009 and 2010, advertising and promotion costs totaled $528 and $527, respectively.





Net Loss Per Share – Basic net loss per share is based upon the weighted average number of common shares outstanding.  Diluted net loss per share is based on the assumption that all dilutive warrants and stock options were converted or exercised.  Dilution is computed by applying the treasury stock method.  Under this method, options, warrants and restricted stock are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  Since the Company has incurred losses from all periods presented, the dilutive per share calculation is the same as the basic calculation.  Anti-dilutive securities not included in net loss per share calculation for the quarters include:





Three Months Ended

September 30,2009


2010Potentially dilutive securities:Outstanding time-based stock options


6,436



19,874Outstanding time-based restricted stock


4,000



4,000Warrants


3,010



7,690





Depreciation and Amortization – Depreciation and amortization are recorded using the straight line method over the estimated useful lives of the various classes of depreciable and amortizable property.  The Company records depreciation and amortization as a separate component of operating expenses.




8





GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)




Fair Value Measurements–Accounting standards have been issued which define fair value, establishes a market-based framework or hierarchy for measuring fair value and expands disclosures about fair value measurements. The standard is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. The standard does not expand or require any new fair value measures; however its application may change current practice.





Fair value is defined under the standard as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standard also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.





●
Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market





●
Level 2 — inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability





●
Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability





The Company’s other financial instruments at September 30, 2010 consist of accounts receivable, accounts payable and debt.  For the three months ended September 30, 2010, the Company did not have any derivative financial instruments. The Company believes the reported carrying amounts of its accounts receivable, accounts payable and related party debt approximate fair value, based upon the short-term nature of these accounts. The carrying value of the Company’s loan agreements approximate fair value as each of the loans bears interest at a floating rate.




3.
INVENTORIES, NET





Inventories consist of the following:




June 30,

2010


September 30,

2010Raw materials

$
1,377


$
1,147Finished goods


411



374$
1,788


$
1,521




Inventories are presented net of reserves of $770 and $622 at June 30, 2010 and September 30, 2010, respectively.




9




GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)




4.
INTANGIBLE ASSETS





Intangible assets consist of the following:




June 30,

2010


September 30,

2010


Estimated

Useful LivesPurchased Technology and exclusivity rights

$
2,550


$
2,550



7Less: accumulated amortization


880



971$
1,670


$
1,579





Expected amortization of intangible assets is as follows:





2011

$
2732012


3642013


3642014


364Thereafter


214$
1,579





Amortization expenses included in the caption “depreciation and amortization” totaled $121 and $91 for the three months September 30, 2009 and 2010, respectively.





5.
ACCRUED EXPENSES





Accrued liabilities consist of the following:




June 30,

2010


September 30,

2010Accrued payroll and taxes

$
643


$
684Accrued interest, related party


220



222Other


230



236Total

$
1,093


$
1,142




6.
NOTES PAYABLE, RELATED PARTY





The note payable consists of a secured note, as amended dated December 28, 2007 which is held by the Company’s immediate former President and Chief Operating Officer, who resigned in September 2010.  Interest accrues at a rate of 6% per annum and is due on April 1, 2011.  As of June 30, 2010 and September 30, 2010, the balance due was $200 and $160, respectively.




10




GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)




7.
STOCKHOLDERS EQUITY





Private Placements





From July 1, 2010 through September 30, 2010, the Company issued 700,000 shares of common stock for gross proceeds of $350 in private placement transactions.





Restricted Stock





The Company did not issue any restricted stock for the three months ended September 30, 2010.





Restricted stock expense for the the three months ended September 30, 2010 was $170.





As of September 30, 2010, there were 4,000,000 shares of unvested restricted stock outstanding and $227 of unrecognized compensation costs.  The Company expects to recognize these costs over the next four months.





Stock Options





The 2008 Employee Stock Award and Incentive Plan, as amended (the “2008 Plan”) made 20,000,000 shares of common stock available for future equity awards. Under the 2008 Plan, stock option grants may be exercised for a period up to ten years from the date of grant. Option awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant and generally vest over three years.





Option activity for the three months ended September 30, 2010 is as follows:





Number of

Options


Weighted

Average

Exercise

Price

Weighte

Average

Remaining

Contractual

Term

Aggregate

Intrinsic ValueOutstanding at June 30, 2010


8,436,250


$
0.43

9.0 yearsGranted


6,250,000


$
0.39Share Exchange


6,000,000


$
0.39Exercised


-0-Forfeited and Cancelled


(812,500
)

$
0.49Outstanding at September 30, 2010


19,873,750


$
0.42

9.5 years

$
268Exercisable at September 30, 2010


7,874,491


$
0.41

9.6 years





In September 2010, the Company’s board of directors approved option grants to the Company’s executive officers and a director.  The total numbers of shares granted were 6,250,000 and have an exercise price of $0.39 equal to the closing price per share of the Company’s common stock on September 16, 2010.





The aggregate intrinsic value represents the difference between the exercise price of the underlying awards and the market price of the Company’s common stock for those awards that have an exercise price below the market price at September 30, 2010.







11


GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)




The fair value of each time-based option award is estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:


For the Period

Ended

September 30,

2009


For the Period

Ended

September 30,

2010Average expected life (years)


6.0



6.0Average risk free interest rate


3.5
%


3.27
%Expected volatility


125
%


225
%Expected dividend rate


0
%


0
%Expected forfeiture rate


5
%


5
%





Stock option expense for the three months ended September 30, 2010 was $766.





As of September 30, 2010, there was $7,026 of unrecognized compensation cost. The Company expects to recognize these costs over the next 2.3 years.





At September 30, 2010, 126,250 shares are available for grant under the 2008 Plan.





Warrants





Warrant activity for the three months ended September 30, 2010 is as follows:




Number of

Options


Weighted

Average

Exercise

Price

Weighte

Average

Remaining

Contractual

Term

Aggregate

Intrinsic ValueOutstanding at June 30, 2010


7,689,722


$
0.28Granted


-0-Exercised


-0-Outstanding and exercisable at September 30, 2010


7,689,722


$
0.28

2.2 years

$
756


Other Uses – Common Stock





In July 2010, the Company issued 200,000 shares to pay a consulting firm for services rendered.  The value of the shares in connection with this transaction totaled $106.





Share Exchange





In September 2010, the Company exchanged stock options covering 6,000,000 shares of the Company’s common stock, vesting immediately to the Company’s Chief Executive Officer upon his forfeiture of 6,000,000 restricted shares of the Company’s common stock previously issued to him.  The Company accounted for this exchange as a type I modification of a share-based award.  The Company assessed the fair value of the awards on the modification date and determined that no incremental value was present and therefore no additional compensation expense was recorded




12




GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)


8.
COMMITMENTS AND CONTINGENCIES
 
 Mathew Zuckerman Litigation
 
 On November 20, 2009, Mathew Zuckerman, the Company’s founder and a former director and executive officer, and other entities that he either controls or in which he claims a beneficial interest commenced an action against the Company in the Superior Court of California, County of Los Angeles.  On or about February 19, 2010, the Company successfully removed the case to the United States District Court for the Central District of California.   On June 16, 2010, the Company filed its amended counterclaims.  The trial is scheduled to begin March 15, 2011.  The parties are currently in the process of discovery.


Although the Company believes that they have meritorious defenses to Plaintiffs' claims and will prevail against those claims and succeed on its amended counterclaims against Zuckerman, this matter is at a preliminary stage and the company is not in a position to predict or assess the likely outcome of these proceedings.  Accordingly, the Company has not reserved for any future loss that may arise as a result of an adverse outcome in this litigation.





There have been no other material developments in the legal proceedings previously disclosed in the Company’s Exchange Act Reports and there are no additional legal proceedings to report.




9.
RELATED PARTY TRANSACTIONS


In February 2008, the Company entered into an agreement with Inventek under which Inventek granted the Company a royalty-free license and exclusivity rights to market, sell and distribute cleaning products. Inventek is owned by Yasmin Andrecola, whose husband Paul Andrecola, beneficially owns approximately 6.7% of the Company’s stock as of September 30, 2010.  Under the terms of the agreement, Inventek and the Company agreed to combine resources and work together collectively to formulate and manufacture products to be sold under the company’s brand names.  The Company purchased inventory from Inventek totaling $0 and $168 for the three months September 30, 2009 and 2010, respectively.  As of June 30, 2010 and September 30, 2010, there was a receivable, included in prepaid expenses and current assets, due from Inventek for returned inventory of $48 and $42, respectively.





In July 2007, the Company entered into a services agreement, as amended, with Marketiquette which is owned and operated by Jeffrey Loch, the Company’s president, chief marketing officer and one of its directors, and Carol Loch, his wife.  Mr. Loch does not receive any regular cash compensation from the Company for his services as the Company’s president, chief marketing officer and director.  Carol Loch is the sole member of KeysKwest, LLC, which beneficially owns approximately 5.9% of the Company’s outstanding shares as of September 30, 2010.  Under the terms of the services agreement, the Company pays Marketiquette a monthly retainer of $36,000 as well as commissions from 5%-10% based on net sales it generates.  The commissions depend on the customer’s class of trade with a declining maximum scale based on volume.  Marketiquette uses the monthly retainer primarily for employees’ salaries, including four full-time and one part-time employee, and the commissions to primarily pay up to 100 of its sales representatives.   The Company paid Marketiquette a total of $152 and $133 for the three months ended September 30, 2009 and 2010, respectively, which are included in selling, general and administrative expenses.  As of June 30, 2010 and September 30, 2010, amounts due to Marketiquette were $76 and $95, respectively.





In December 2008, the Company entered into a five-year worldwide distribution agreement for G-branded products with TTI. TTI beneficially owns approximately 24% of the Company’s outstanding shares as of September 30, 2010.  For the three months September 30, 2009 and 2010, approximately 77% and 26% of the Company’s revenues, respectively, were earned from TTI.  As of June 30, 2010 and September 30, 2010, amounts due to TTI, included in accounts payable, were $234 and $255, respectively.  As of June 30, 2010 and September 30, 2010 advances received from TTI for future sales of cleaning and performance products was $407, respectively.




13




GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in thousands, except share and per share data)






10.
CONCENTRATIONS OF RISK





Cash





The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation subject to certain limitations.





Accounts Receivable





The Company distributes performance and cleaning products to the entire U.S. market.  The following customers represent the majority of the Company’s sales:




September 30,

2009


September 30,

2010SalesTTI


77
%


41
%Ed Maxwell Sales


-



33
%ACE Hardware


13
%


4
%June 30,

2010


September 30,

2010Accounts ReceivableEd Maxwell Sales


-



47
%TTI


-



21
%ACE Hardware


67
%


4
%





Inventory





The Company purchases all of its cleaning products and some performance products from Inventek, a related party.  The Company’s inventory on hand purchased from Inventek is as follows:





June 30,

2010


September 30,

2010Inventory on handInventek

$
941


$
851Inventory purchasedInventek

$
816


$
168
 14


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Special Note About Forward-Looking Statements





Certain statements in Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933,as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.





Overview of our Business





We market, sell and distribute an array of branded, environmentally-friendly, bio-based performance and cleaning products to the automotive, outdoor power equipment and marine markets.  The “green” base of our performance products is comprised of animal fats, while our cleaning and oil spill response products use plant and vegetable oils.  This biodegradable green base replaces traditional petroleum and chemical derived bases typically used to make motor oils, cleaning solutions and other consumer products without compromising performance or value.  We believe our products deliver comparable or superior performance at competitive prices, thus giving consumers the ability to “do their part” in protecting the environment.





Our G-brand family of products includes G-OIL®, G-FUELTM, G-CLEANTM, G-GLASSTM and G-MARINETM.  These products are offered in a wide range of automotive, outdoor power equipment and marine categories, primarily performance and cleaning solutions. We sell the majority of our products through master distribution agreements with wholesalers and contractual arrangements with independent sales professionals. Our products are available at a number of national retail outlets and chain stores. We are actively pursuing relationships with other wholesalers and retailers to include additional major national consumer purchase locations in the household goods, automotive aftermarket, outdoor power equipment market and marine market.





In the second half of fiscal 2010, we focused on reformulating performance products and, therefore, had a limited inventory of those products to sell.  As a result, sales of our performance products were lower than they were during the first quarter in fiscal 2011.  We continue to develop proprietary formulations for other grades of lubricants and motor oils and are working with suppliers, additive companies and blending facilities to produce these products and others on a contract basis.  In addition, we reformulated our engine and motor oils to a higher more consistent standard and proved the performance of our oils via third party bench tests and in the American LeMans racing series.





In September 2010, we entered into a Product Production and Sales Agreement with the Delta Group. Under this agreement, the Delta Group agreed to produce and sell to us performance products based on the formulations and specifications that we provide.  The agreement has a three-year term and may be automatically renewed for additional one year terms. The Delta Group purchases all the raw materials, including the bio-base as well as the various additives and other ingredients, blends, bottles, tests, warehouses and ships the finished products to our customers. This relationship allows us to leverage the synergies and buying power of the Delta Group as well as its ability to provide ancillary supply chain services such as testing, bottling, packaging, warehousing and shipping. In addition, the Delta Group has the right to sell our performance products to its own customers either under our G-brand label or under the customers’ private label.





In July 2010, our OSC-1809 Surface Washing Agent was approved for listing on the Environmental Protection Agency’s National Oil and Hazardous Substance Pollution Contingency Plan Schedule, which means it can be used to help clean up oil spills.  During September 2010, we commenced shipment of our OSC-1809 Surface Washing Agent.




15




Results of Operations


(All dollar amounts referred to herein are in thousands, except as otherwise indicated.)





Three Months Ended September 30, 2009 and 2010





Our activities for the three months September 30, 2009 and 2010 essentially included capital origination, product development, manufacturing, marketing and sales of our bio-degradable performance and cleaning products, development of mass market product distribution networks for the intended distribution of our products, development of an infrastructure to support the planned business and commencement of revenues.





Our results of operations for the three months September 30, 2009 and 2010 are as follows:





Three Months Ended

September 30,2009


2010Net sales
$
425


$
460Loss from operations
$
(2,703
)

$
(2,605
)Other expense
$
(7
)

$
(2
)Net loss
$
(2,710
)

$
(2,607
)





Net Sales





Net sales for the three months ended September 30, 2009 was $425, primarily attributed to sales of 4-cycle oil, bar and chain lubricants, fuel stabilizer, 5W-30 motor oil and cleaning chemicals.  Net sales for the three months ended September 30, 2010 was $460, primarily attributed to sales of OSC-1809 surface washing agent, grill cleaner, 4-cycle oil, 5W-30 motor oil, bar and chain lubricants and cleaning chemicals. The increase in net sales from 2009 to 2010 is a result of our first shipments of OSC-1809 surface washing agent in September 2010, which was partially offset by delays in production of performance products.  We started shipping our reformulated performance products in September 2010.  We anticipate that future orders for our performance products from our major customers will result in an increase in sales.





Two customers, TTI and Ace Hardware, accounted for 77% and 13% of our net sales in the three months ended September 30, 2009, respectively.  Two customers, TTI and Ed Maxwell Sales, accounted for 41% and 33% of our net sales in the three months ended September 30, 2010, respectively.  Net sales for the three months ended September 30, 2009 and 2010 are comprised as follows





Three Months Ended

September 30,2009


2010Performance products
$
375


$
128Cleaning products
$
50


$
332Total
$
425


$
460





Cost of Sales (exclusive of depreciation and amortization)





Cost of sales (exclusive of depreciation and amortization) primarily consists of the cost of obtaining bio solvents, plant oils, additives, packaging components and fees paid to our affiliates for the costs of salaries and benefits of operations employees.  Cost of sales (exclusive of depreciation and amortization) for the three months September 30, 2009 and 2010 were approximately $366, and $371, respectively.  The increase in cost of sales (exclusive of depreciation and amortization) from 2009 to 2010 is primarily due to the increase in net sales.




16





Selling, General and Administrative Expenses





Selling, general and administrative expenses consist primarily of salaries and benefits, product development and testing fees, advertising and marketing expenses, public relations, insurance, fees for professional services and non-cash charges for stock compensation.  Selling, general and administrative expenses for the three months September 30, 2009 and 2010 include the following:




Three Months Ended
September 30,2009


2010Salaries

$
270


$
234Stock-based compensation

$
911


$
1,042Selling, marketing, public relations and related

$
671


$
624Development, product release and testing

$
68


$
120Management and operating fees

$
227


$
174Legal and professional

$
229


$
270Occupancy, communications and all other, net

$
250


$
132Total selling, general and administrativeexpenses

$
2,626


$
2,596





The decrease in salaries from fiscal 2009 to 2010 is due to the resignation of our former president and chief operating officer in September 2010.  The increase in stock-based compensation is primary due to the issuance of stock for consulting services rendered and an increase in the number of stock option grants in fiscal 2010 as compared to fiscal 2009.  The decrease in sales and marketing from fiscal 2009 to 2010 is primarily due to decreased promotion and shipping costs, partially offset by higher sponsorship fees of the racing team “Green Earth Team Gunnar” and the American Le Mans Series.The increase from fiscal 2009 to 2010 in development, product release and testing is primarily due to the initial independent testing fees to obtain the SN rating from the American Petroleum Institute (API) for our 5W-30 motor oil.  The decrease in management and operating fees from fiscal 2009 to 2010 is due to the termination of our agreement with Kwik Paint Products.  The increase in legal and professional fees is primarily due to higher legal fees in connection with the Zuckerman litigation, partially offset by lower audit fees.  The decrease in occupancy, communications and all other from 2009 to 2010 is primarily due to lower taxes, rent, travel, and telecommunication charges.





Depreciation and amortization





Depreciation and amortization expense for the three months September 30, 2009 and 2010 was approximately $136 and $98, respectively.  Depreciation charges totaled $15 and $7 for the three months September 30, 2009 and 2010, respectively.   The fiscal 2009 to 2010 decrease in depreciation expense is due to the write off of equipment.





Amortization expense for intangible assets totaled $121 and $91for the three months September 30, 2009 and 2010, respectively.  The fiscal 2009 to 2010 decrease in amortization expense is primarily due to the write off of certain intangible assets.The expense is excluded from cost of sales.





Interest expense, net





Net interest expense for the three months September 30, 2009 and 2010 was approximately $7 and $2, respectively.  Interest expense consists of interest due on notes payable to related parties. Interest income consists of interest earned on bank deposits and deposits in an institutional money market fund. The decrease in interest expense is due to the re-payment of notes payable to related parties and a reduction of interest rates on these notes. Interest expense is currently accruing at approximately $3 per quarter.




17





Liquidity and Capital Resources





At June 30, 2010 and September 30, 2010, we had $1,360 and $405 in cash and an accumulated deficit of $45,238 and $47,841, respectively.  As June 30, 2010 we had working capital of $371.  As of September 30, 2010, we had a working capital deficit of $746.





Net cash used by operating activities was $1,460 and $1,265 for the three months September 30, 2009 and 2010, respectively. The decrease from 2009 to 2010 was primarily due to an increase in accounts payable, partially offset by payments made to vendors in the three months ended September 30, 2010.





Net cash provided in financing activities was $1,318 and $310 for the three months September 30, 2009 and 2010, respectively. The sequential decrease in financing activities is primarily due to lower cash receipts from private placement transactions. The net proceeds from our financing activities will be used to support our expansion, including purchases from suppliers, advertising and increased infrastructure costs. We cannot estimate at this time the cost of capital necessary to integrate our new supplier for our performance related products.  Nor have we determined if the funding will involve cash, debt or equity.





Our capital requirements are not significant as the majority of our performance and cleaning products are outsourced to third party suppliers.  During three months September 30, 2009 and 2010, our cash used for investing activities (capital requirements) was $4, and $0, respectively.  In the foreseeable future, we will require capital for the growth of our business, including increases in personnel, sales and marketing, purchasing raw materials and packaging finished goods to fulfill orders.





We currently have no material commitments for capital expenditures.





Further, losses from operations are continuing subsequent to September 30, 2010 and we anticipate that we will continue to generate losses from operations in the near future.





Since inception, we have financed our operations by issuing securities (common stock and debt instruments) in various private placement transactions and from revenue generated by sales of our products.





Equity





From July 1, 2010 through September 30, 2010, we issued 700,000 shares of common stock for gross proceeds of $350 in private placement transactions and used 200,000 shares of our common stock, with a market value on the date of issuance equal to $106, to pay a consultant for services rendered.





Going Concern Consideration





Due to our limited amount of additional committed capital, recurring losses, negative cash flows from operations and our ability to pay outstanding liabilities, in their report for the fiscal year ended June 30, 2010; our independent auditors stated that there is substantial doubt about our ability to continue as a going concern. These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, assuming that we will continue as a going concern.





Since inception, we have incurred operating losses and negative cash flows from operations.  As of September 30, 2010, we had an accumulated deficit of $47,845, with total stockholders’ equity of $908.  We had a working capital deficit of $746 at September 30, 2010





Since September 30, 2010, we have had discussions with existing and potential new investors regarding an investment in us.  Although we do not have any firm commitments, we intend to continue these discussions.  Additionally, we believe revenues will increase as consumers learn of and experience the efficacy of our products.  Increased revenues will reduce, or eliminate our operating losses and enable us to meet our financial obligations. However, there can be no assurances that we can attract new investment or increase revenues.  Failure to obtain sufficient equity financing would have substantial negative ramifications to us.




18





We have estimated we may require approximately $3.5 – $5.0 million of additional cash for fiscal year ending June 30, 2011.





Contractual Arrangements





Significant contractual obligations as of June 30, 2010 are as follows:





Type of Obligation

TotalObligation


Amount Due in

Lessthan 1 yearFacility Lease

$
146


$
96





Off Balance Sheet Arrangements





We have no material off balance sheet arrangements that are likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.





Critical Accounting Policies




There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2010.





Summary of Significant Accounting Policies and new Accounting Pronouncements





See note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements for a full description of recently issued accounting pronouncements, including date of adoption and effects on results of operations.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


As a smaller reporting company, we are not required to provide the information required by this item





ITEM 4.  CONTROLS AND PROCEDURES.




Evaluation of Disclosure Controls and Procedures





We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this Report.  Based on this evaluation, our Chief Executive Officerand our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2010, to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate, to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported as specified in the SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and can therefore only provide reasonable, not absolute, assurance that the design will succeed in achieving its stated goals.




19





Changes in Internal Control Over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.





Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment of our internal control over financial reporting as of September 30, 2010. Management’s assessment of internal control over financial reporting was conducted using the criteria in Internal Control over Financial Reporting - Guidance for Smaller Public Companiesissued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  In connection with our assessment of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified material weaknesses related to our inventory in our internal control over financial reporting as of September 30, 2010.




As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended June 30, 2010, we identified material weaknesses related to our inventory processes and procedures.  During fiscal 2010 and in connection with the September 2010 third-party manufacturing agreement, inventory management will become more simplified and controlled.  By the second quarter of 2011 we expect that our enacted procedures (and new management agreement) will have fully remediated our prior material weaknesses.





Because of the material weaknesses disclosed in our Annual Report, we have concluded that we did not maintain effective internal control over financial reporting as of September 30, 2010, based on Internal Control over Financial Reporting - Guidance for Smaller Public Companiesissued by COSO.





There were no other changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2010 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than disclosed above.







20




PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS
 
 There have been no material developments in any legal proceedings or the December 2009 SEC subpoena previously disclosed in our Exchange Act Reports and there are no additional legal proceedings to report.
 
 ITEM 1A.  RISK FACTORS
 
 The following risk factors have been updated with respect to results from the period covered by this report. Other than those below, there were no other material changes from the risk factors previously reported in our Annual Report on Form 10-K for the year ended June 30, 2010.  Please refer to Item 1A in our Annual Report on Form 10-K for disclosures regarding other risks and uncertainties related to our business.


We have determined that there is a material weakness in our internal controls over financial reporting, which may be insufficient to detect in a timely manner misstatements that could occur in our financial statements in amounts that may be material.




As set forth in Item 4 of this report, in connection with our assessment of internal control over financial reporting for the period ended September 30, 2010, we concluded that we did not maintain effective internal control over financial reporting as of September 30, 2010 due to material weaknesses in our financial reporting controls and our inventory controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  We are in the process of implementing remediation efforts with respect to the material weaknesses noted.  However, despite these steps, we may experience reportable conditions and material weaknesses in the future, which may render us unable to detect in a timely manner misstatements that could occur in our financial statements in amounts that may be material. We cannot assure you that we will determine that our material weakness have been remedied by the end of our next reporting period.




21





Future sales or the potential for sale of a substantial number of shares of our common stock could cause the trading price of our common stock to decline and could impair our ability to raise capital through subsequent equity offerings.





Sales of a substantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could cause the market price of our stock to decline and could materially impair our ability to raise capital through the sale of additional equity securities.  As of November 15, 2010, we had 134,918,143 shares of common stock issued and outstanding.  In addition, as of November 15, 2010, we had reserved an additional 31,689,722 shares for issuance as follows:





●
20,000,000 shares reserved for issuance under our stock option plan, of which 19,873,750 underlie outstanding options at September 30, 2010;


●
4,000,000 shares issuable to our chief executive officer under his employment agreement; and


●
7,689,722 shares underlying outstanding warrants.




ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (ALL DOLLAR AMOUNTS ARE IN THOUSANDS)


In July 2010, we issued (i) 700,000 shares of our common stock for gross proceeds of $350 in a private placement transaction and (ii) 200,000 shares of our common stock, with market value on the date of issuance equal to $106, to a consultant for services rendered. These issuances of were made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), provided by Section 4(2) or 4(5) thereof for transactions by an issuer not involving any public offering.  The stock certificates evidencing these shares were imprinted with legends restricting transfer without an appropriate opinion of counsel.





In September 2010, stock options exercisable for 2,000,000, 4,000,000 and 150,000 shares of the Company’s common stock at an exercise price of $0.39 (the fair market value on the date of grant) per share were granted to Greg Adams, Jeffrey Loch and David Buicko, respectively, in connection with their respective appointments as chief operating officer, president and chief marketing officer and director.  These options were granted pursuant to our 2008 Stock Award and Incentive Plan, as amended, and are exempt from registration under Rule 701 promulgated by the Securities Act.




22




ITEM 6. – EXHIBITS




Exhibit

Numbers

Description31.1

Certification of  Chairman and Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *31.2

Certification of  Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *32.1

Certification of Chairman and Chief Executive Officer and Chief Operating Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


* filed herewith


23


SIGNATURES





Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.





GREEN EARTH TECHNOLOGIES, INC.Date: November 15, 2010

By:
/s/ William J. MarshallName: William J. MarshallTitle: Chairman and Chief Executive Officer(Principal Executive Officer)By:
/s/ Greg D. AdamsName: Greg D. AdamsTitle: Chief Operating Officer and Chief Financial Officer(Principal Financial Officer)